EU Regulator Raids Intel Offices

stevedcc writes "BBC news is reporting that Intel's offices in Munich, Germany have been raided by European Union competition regulators. From the article: 'The Reuters news agency reported that the Commission also raided computer retailers on Tuesday including Germany's Media Markt, which sells PCs with Intel central processing units but not those made by AMD. Regulators have the power to fine Intel up to 10% of annual turnover if they find it guilty of stifling competition. Intel has said it is "confident" it had acted lawfully.'"

Comments

The line forms to the right

[erick99]

"Intel has been accused of trying to abuse its dominant market position by selling its products below cost price and making cash payments to customers".

Where do I get in line for this?

Re:The line forms to the right

[snowraver1]

You don't really want it. Competition would be way better in the long run. Competition keep prices down and innovation moving. If you really want to help the industry, buy AMD so that next time you are building a computer, you will still have the option to choose the CPU.

Re:The line forms to the right

[eln]

Sure, it means that competition is present at the moment, but it also means they're attempting to eliminate the competition. A larger company will sell below cost because they know a smaller company will go bankrupt trying to compete on price well before they will. If this sort of thing goes unchecked, the larger company will jack up its prices after the competition is eliminated, and the end result will be no choice and high prices for consumers.

Re:The line forms to the right

[Hognoxious]

So... you'd prefer a monopoly with a vested interest to do it?

Re:The line forms to the right

[RightSaidFred99]

Actually, you're 180 degrees wrong. You're effectively rewarding incompetence. This is why many people are against the credit bail-out. You are saying that even though these companies made risky loans and lost a bundle of money on it, we're going to bail them out because it's in our best interests. This logic gets built into the market, and people start making bigger and bigger risks.

Your "informed economic decision" effecitvely rewards a company for poor performance. Not only that but it gets you, the buyer, a technically inferior product.

You're also baking in the assumption that price is the only differentiator here, when clearly it isn't. There's support, technical compatibility and platform choice, speed, stability, etc... that all goes into a decision like this. Now, if all these things are close enough to equal then by all means pick your favorite company if you want them to do well. But just buying a crappier chip and paying more for it out of some misguided sense of econ-101 isn't real wise.

Re:The line forms to the right

[agent_no.82]

Except that given the situation here, the substantial costs of entering the CPU market mean that if Intel does end up bankrupting AMD, (which is quite close in performance outside the high range) there will be no serious competitors and thus significantly less incentive for them to continue a CPU arms race. Also, consumers will end up paying significantly more than they would otherwise.

Re:The line forms to the right

[TheRaven64]

Most folks just want the best processors Very few people want the best processor. Most people want the cheapest processor that is 'good enough.'

Re:The line forms to the right

[explosivejared]

It's a little different when you're bailing out Goldman Sachs, which doesn't have an 800 lb gorilla of monopoly on its back like AMD does. Bailing out banks for insane lending creates moral hazard and positively reinforces bad behavior. Investing in AMD doesn't. It promotes competition and a more efficient market.

All those differentiations you speak about will suffer if there is only one manufacturer. And we all know how well the government busts up monopolies, so if you have any vested interest in CPU's, support AMD.

Please do tell how promoting an actual market is a misguided sense of "econ-101." Note I was speaking about the specific AMD situation when making my argument. I'm not here to argue if all things are equal between the two, just that having AMD around is important.

Re:The line forms to the right

[RightSaidFred99]

That's the way the market works. Let's say AMD goes out of business and Intel raises prices. Suddently, there's a huge incentive for competitors to come up with something new and better. If Intel charges $1500 for a 3GHz 8-core processor supposing AMD goes out of business, they've taken CPUs further away from being a commodity item (which they're dangerously close to now). Suddenly not only the big players but the small research companies have an incentive to do something new to take a part of that market.

For example, they may develop a much faster incompatible chip which can run virtual machines emulating x86 at the same speed as a real x86 chip. Or they may just take AMD's IP and build on it to create a competitive chip and use someone else's fabs.

High prices from a monopoly on a non-supply limited item are part of the marketplace. It drives innovation. So in the end, I don't even find your "worst case" scenario all that bad. But on a realistic front, AMD isn't going out of business. Even if they bankrupt their products will still be made and sold for the forseeable future by _someone_.

Re:The line forms to the right

[s_p_oneil]

No, it doesn't. It means that AMD is down and Intel is going in for the kill. If AMD is killed, competition in that market will be completely dead. CPU prices will soar, Intel won't need to spend so much on research, and everyone else will be so far behind Intel that no one will be able to catch up. In short, the consumers will get screwed.

Re:The line forms to the right

[RightSaidFred99]

If that where right 100% of the time then where is the competition for microsoft? You're joking, right? There is tons of competition for Microsoft. Linux in hundreds of variations, Apple, Open/FreeBSD, [Open],Solaris, and uncountable niche OS's. In the application space there are all kinds of products in every field they sell in that compete as well. This exactly highlights my point. People didn't like MS OS's and/or their prices, so they went and developed Linux and all the other OS's.

And that's precisely why MS doesn't charge a ridiculous amount of money for their product, they know they would lose even more customers were they to do so.

Re:The line forms to the right

[Sergeant Pepper]

That's not what selling below cost is. It would be like this:

I have this widget, which cost me $2 to make. I sell it for $1.

The goal is to move on to this:

Though I take a loss on every sale, the competition is a smaller business and cannot take the loss for as long as I can. Once they arebankrupt from either no one buying their products because mine are cheaper or also selling at below cost with their coffers running out sooner, I can then sell my widgets, that were previously $1 and cost me $2 to make, for $50.

Re:The line forms to the right

[gr8scot]

You're effectively giving charity to AMD. They can't win your money by making the best product, but you're convinced that it will somehow serve you in the long run. I don't know how you can rationally make such an analysis, but I certainly wouldn't bet on it if I were you. I also prefer the AMD brand in general, so much that even if they are marginally worse in price/performance at a particular time for a particular purpose, I would probably not buy the Intel chip, and I don't mind explaining my rationale. The price/performance difference would have to be quite a bit to get me to seriously consider Intel, because I remember the pressure their introduction put on Intel's prices not so long ago, and more recently I remember how quickly they surpassed Intel in performance, and by what a dramatic margin. Intel's current lead in the bleeding-edge is not as wide, is a recent development, and does not overcome my general impression, based on years of following the high-tech news well enough to comfortably post my opinions publicly, that Intel is comparatively bloated, and dependent on its Marketing and Sales departments rather than its Research and Development. Then, there is the anecdotal evidence they frequently give us when they sell below cost, that they recognize their own technical inferiority and can only "win" by the sheer magnitude of their pre-existing capital.

PS Such behavior is irrational when viewing corporations and their customers as entities, and of course the motivations are quarterly earnings, EPS, and other jargon used mostly by people who don't know or care what they're talking about, but all come down to short-term interests of certain investors. I consider that by itself a good reason to dislike collective ownership and laws that favor collective corporate structures, generally. Collective ownership should not be outlawed as such, but it should receive no special preferences, either. Although AMD is also publicly-traded, they appear to have saner management, and to be at worst, a smaller contributor to the same problem, and often appear to have positive effects.

Gone Too Far

[Frosty Piss]

As to Media Markt, if they wish to sell only the crap from Intel, why shouldn't they be allowed to? Simply because you don't "like" a company (...Microsoft...) doesn't mean in a free market, retailers should not be able to be exclusive.

When a group actually hates a company as much as people do here with Microsoft/Intel, it's easy to become overly biased against the rights of people to choose these two businesses.

Re:Gone Too Far

[Silver Sloth]

How it works:-

1. Dominant player in market cuts costs to below cost of manufacure
2. Secondary player has to cut costs to match
3. Secondary player has shallower pockets than dominant player and goes out of business
4. Dominant player is now only player and can raise costs as high as they want to make back all they lost in action #1

There are reasons for market regulators, and not just because we European liberals like big government.

Re:Gone Too Far

[abigsmurf]

The problem is Intel are producing better chips than AMD and are able to make them for less because of lower failure rates and smaller die sizes. The main problem with the CPU industry at the moment is AMD are just doing bad in general and not keeping pace.

Re:Gone Too Far

[matria]

This happens in other markets as well. Some years ago my husband worked for Pfizer. Pfizer and most of the other big pharmaceuticals made penicillin. It wasn't exactly a large profit item, but a good seller. Then a European company started "dumping" and nobody else was willing to match their prices. So all the other pharmas quit making penicillin; most of them re-tooled their penicillin facilities to other products. Pfizer also quit making penicillin, but their equipment was so old they just left it sit. The European company misjudged and ended up going out of business. Suddenly there was no supply of penicillin. So for a couple of years, until some other companies got their penicillin facilities retooled back to making penicillin, Pfizer had the only world supply of penicillin,and could pretty much charge whatever they wanted.

So this sort of behavior is definitely not a good thing. Except for Pfizer there for a while, anyway.

Re:Gone Too Far

[stevedcc]

The problem is Intel are producing better chips than AMD and are able to make them for less because of lower failure rates and smaller die sizes. The main problem with the CPU industry at the moment is AMD are just doing bad in general and not keeping pace.

If this had always been true, it might be fair to say that AMD were a poor competitor. However, from the launch of the Athlon until the launch of the Core2, for several years, AMD had a better product, yet found major difficulties in getting market share. Intel's alleged tactics are illegal, and it's right that they should be properly investigated. It's just a pity that any fine imposed will hurt Intel but not benefit AMD or consumers, who are the real injured parties.

Re:Gone Too Far

[Guspaz]

It doesn't help that, the moment they start to get traction towards resolving their anti-trust concerns, their products take a nosedive in quality.

In the CPU front, the Core 2 is spanking the Phenom in all market segments, although the Athlon series is still holding on to the very low-end on low cost alone.

On the GPU front, they just gave up on the high end entirely for a while. The only way they can even compete with nVidia's 8800 series (which is about to be replaced with new cards) is to stick two of their best GPUs on one card. Yes, it's a neat technical solution, but it'd be a heck of a lot more impressive if each of those two GPUs was the equal of an 8800. nVidia's soon-to-be-released 9000 series is going to hurt AMD a lot. What're they going to do, put four GPUs on a card to compete with nVidia's one? What happens when nVidia starts putting multiple GPUs on a card, offering double the performance of AMD's solution?

It's only a matter of time before the Core 2 products start breaking into the very low-end market, and AMD gets supplanted there too. Unless their next generation of CPU and GPU products can actually compete on merit, it may not matter if Intel's semi-monopoly is broken.

Re:Gone Too Far

[Otter]

As it happens, the EU was raiding pharmaceutical companies a few weeks ago over generics pricing issues. Sounds like they're getting pretty, err, proactive on antitrust issues over there...

AMD has built some big expensive fabs in Germany

[mikeabbott420]

When this happens in Ireland it will be a surprise.

What about Saturn?

[Xelios]

Saturn is another big electronics retailer in Germany, will they be raided too? Because like Media Markt they don't sell AMD either. Not surprising considering they're both owned by the Metro conglomerate. Must make for some good 'competition' in the electronics market...

Printers?

[JCSoRocks]

It's interesting that this is a big deal in the chip industry but not with printers... Everyone knows printers get sold for nothing and all the money is made on the ink and paper. You don't here about raids for selling printers below cost. I'd be interested in knowing what percentage of profit comes from CPU's versus graphics chips, chipsets, controllers and the myriad of other products that AMD and Intel make. If CPUs don't represent a significant portion of the income for either business - what difference does it make? In that case they're both obviously playing the printer game where their CPU is priced cheap so that you'll buy their chipset, graphics, etc chips too.

Re:Printers?

[dasbush]

Everyone knows printers get sold for nothing and all the money is made on the ink and paper. You don't here about raids for selling printers below cost Since it is generally accepted by all printer manufacturers that there is no money in printer, but rather in the ink, all the companies are doing it. In fact, since there are more than two companies doing this practice and surviving (even thriving) then it clearly is not a monopoly. If there were only two printer companies in the world, and the much larger one started selling ink for nothing, then the analogy would be comparable.

That said, you raise an interesting point about where Intel/AMD make their money. Is it in the CPU or the Mobo's/Video Cards/etc that are optimized to work with the CPU?

Don't you mean

[zappepcs]

Money for nothing and chips for free?

That's fine

[Sycraft-fu]

But that's clearly not the case with Intel. Their products are not being sold below cost, indeed they are making plenty of money. Also a little searching turns up that they aren't dumping (selling cheap abroad and full price at home) or anything like that. So what it appears to be is that Intel produces a quality product that AMD is having trouble competing with. Well, that's the free market at work. AMD's problem isn't that Intel is undercutting their prices to a level they can't sell at, their problem is that Intel has better chips out.

So unless you can show how Intel has been doing something illegal, like selling below cost, then this seems to just be a punitive action since AMD has a big fab in Germany, and Intel does not have any European fabs.

What is it supposed to achieve?

[sane?]

I mean, come on. Its well known that governments will attempt to physically raid companies in search of the evidence they don't have. This is a high tech firm. Surely any sensible CEO would ensure that any questionable docs were held securely in another (corrupt) country, behind heavy duty encryption and only accessible by remote session.

Its not as if there would be a vast number of them, and the skills to make this invisible to the raiding agencies are not likely to be in short supply in somewhere like Intel.

All you can assume is that these raids are a show of force, not seriously expected to deliver anything of value.

Best Processors

[Enderandrew]

At what level? At the top level, yes Intel has a lead right now. There is no denying that. But the low-end AMD processors are so cheap, they give far better bang for the buck. The last processor I bought was an AMD X2 3600+ brand new for $35. At the time, the cheapest comparable Intel dual-core offering was $150. They benchmarked about the same, and the X2 overclocks amazingly well.

$35 or $150, wow that is a tough one.

Again, Intel isn't always the best processor.

Historical Monopolistic Practices

[foxalopex]

There were several articles about a year ago about Intel limiting shipment of CPUs to retailers who dared to sell AMD products. This was back when Athlon64 was king of the hill and P4's were terrible. Sadly, I'm not sure if much came out of that. It may be for this reason that the newer AMD chips are not as great. AMD may have never gotten the extra profit it was entitled to make the next better generation of chips. Seeing how slow most governments are to respond this may be a response to that initial complaint. On the other hand, I seem to recall Germany loaning a huge amount of money to AMD to build a chip fab there. Maybe this is a way of ensuring their investment was sound? Personally I think Intel should get fined anyhow. AMD needs a little help to make sure they survive. If AMD bites the dust we all loose in a big way.

Re:I would have to think it is

[Pulzar]

This is especially true since the processors are their big market. I mean I could see Intel doing it with some other market, like say NICs, that is a small part of their business.

It's exactly what they were doing when AMD was dominating the desktop and 1P/2P server performance with Athlon. They were giving big customers huge rebates on their desktop and 1P/2P server chips to keep AMD from gaining market share, while raking in the profits on the mobile and 4P+ server chip sales since they were still dominating there. They were still profitable, while making AMD's life difficult.

It's also not true that they were still making tons of money. If you look at their gross margins, they severely declined over the last few years because of this competition with AMD.